Determination of equilibrium price and quantity in a market

Question 1

What is Market equilibrium?

Answer 1

-The point at which demand is equal to supply.

Question 2

What is the market equilibrium also known as?

Answer 2

-The market clearing price (no tendency to change), as all products will be sold at this price.

-The buyers can get the exact amount that they want to buy at this price, and all sellers provide exactly the amount that they want to sell at this price.

-Therefore, nothing is left over, the market has been cleared.

Question 3

What will any change in demand or supply lead to?

Answer 3

-A new equilibrium price.

Question 4

What actions should be taken if there is an excess of supply?

Answer 4

• Buyers would demand less at a higher price, but firms would wish to supply more at this price.
• This would lead to a situation of too much supply in the market, and to solve this problem, firms would need to lower price to get rid of excess products.

Question 5

What actions should be taken if there is an excess of demand?

Answer 5

• Buyers would demand more at the lower price but firms would wish to supply less at this price.
• This would lead to a situation of too much demand and to improve profitability, firms could raise price, thus reducing the excess demand.

Question 6

What are market forces?

Answer 6

• When the consumer or producer change in equilibrium by adjusting supply or demand.
• These market forces are always pushing prices towards market equilibrium.